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The delegation from Whitehall ( HM Treasury, HM Revenue and Customs, and the Office of the Deputy Prime Minister) explained that they were undertaking a series of meetings across the United Kingdom, as part of their consultation on a proposal for a Planning-gain Supplement ( PGS). Although the broad outlines of the proposal had been set out in the consultation paper, no final decisions had been made on some of the key questions of detail. The Government was open to views from all interested parties.
In discussion, the following points were made:
General Principles
- There was general agreement to the principle of planning gain being used to ensure more transparent, predictable and timeous delivery of infrastructure, although some questioned its application to small scale developments. Several speakers questioned whether the scheme being proposed would achieve its objectives, and called for more detail on how it would operate in practice. The importance of certainty was stressed;
- Some speakers criticised Planning-gain Supplement ( PGS) as representing another tax on business, that could harm competitiveness. They questioned how much additional revenue would be raised if the tax were set at a "modest" rate. Others noted that the history of land taxes was not encouraging, as many had tended to be introduced at the wrong point in the economic cycle. Some said that the PGS would be inflationary and that costs would inevitably be passed onto the consumer. The Treasury ( HMT) said that they believed that the market would regulate these costs, and that developers would factor them in once PGS was in a steady state. HM Revenue and Customs ( HMRC) said that they recognised that there were nevertheless questions about PGS in a transitional phase, which they were looking into;
- It was stressed that the PGS should respect development economics and the development process. For example, it was often the case that infrastructure constraints needed to be removed before work on the development proper could begin. HMRC stressed that they wanted to draw up the details of PGS in close consultation with the development industry - they were shadowing the work of developers, land buyers and valuers to get a better understanding. HMRC invited any Scottish businesses that would be interested in participating in this process to contact them;
- Speakers noted the need to ensure that PGS did not run into conflict with other Government policies in the Scottish context, such as rural exceptions in planning policy, or provision of affordable housing (where there was a concern that PGS might push up the prices that housing associations had to pay for land, which could have the effect of raising public expenditure). Speakers stressed the importance of PGS not discouraging developers from investing in remote, rural areas by introducing new marginal costs. It was noted that some rural areas suffered disproportionately from market failures, and that developments were sometimes not completed successfully. Others warned that rural landowners would be discouraged from selling land with new marginal costs, and would be prepared to wait for a possible change of administration;
- One speaker asked about the thresholds for small-scale commercial developers. The Treasury noted that this question was part of the consultation and that views were welcome. Options were to look the size of the development, or issues around change of use. Too many thresholds would create unnecessary complexity however;
Valuation/Compliance
- Several speakers called for PGS to use the "residual valuation" approach, set out in the Royal Institution of Chartered Surveyors' Red Book. HMRC responded that they had set up valuation working groups, working with the private and public sectors, to look at possible valuation methodology, and also to study different types of development (with case studies). They wanted to see how far valuation methods could match industry standards;
- Concerns were expressed about self-assessment and how mistakes in valuation (made in good faith) might result in the issuing of Stop Notices, with disastrous consequences for the developments concerned. HMRC stressed that Development Stop Notices would only be used as a last resort - they wanted an effective compliance regime, not a punitive one. HMRC also stressed the need for any PGS scheme to be simple, and to avoid high administration costs. Part of the key to achieving this would be finding mechanisms for pre-commencement binding agreements, which would reduce uncertainty. They had had indications from developers that they would be prepared to contribute to the costs incurred by the Valuation Office Agency in doing this;
- HMRC said that they were interested in the proposals in the Planning etc (Scotland) Bill for Start Notices. Although these were proposed in the context of enforcement of planning control, they might be a prototype for similar start notices for use with PGS. Several speakers stressed the complexities of defining when a development (as opposed to prior infrastructure works, or purifying suspensive conditions) began;
Section 75
- Some local authorities were developing a sophisticated approach to Section 75 agreements. This was essential to ensure infrastructure provision to accompany development in areas of rapid growth, and also offered transparency for the public. The Office of the Deputy Prime Minister ( ODPM) noted the evolution of Section 106 agreements in England, but said that they could not easily tackle cumulative impact of development, nor meet strategic infrastructure needs. PGS was designed to generate additional revenue for dealing with both;
- It was noted that contributions under Section 75 would be a prior charge, and would be deducted when calculating the "planning value" of a development under PGS. The Treasury warned however that widespread use of Section 75 would raise less money that PGS, and that there would accordingly be less to spend;
Revenue Allocation
- In terms of revenue allocation, HMT said that a significant proportion of the revenue raised would go back to the local level - either as a percentage of the tax take, or according to a formula that evaluated infrastructure need. There had been no final decisions on this, but there was an assumption that the money raised within a ( UK) "region" would be spent there - PGS was not intended to be redistributive tax. There would also be new money raised for strategic infrastructure, which in Scotland might be calculated according to the Barnett formula. In any case, the Scottish Executive would need to consider a Scottish solution for both revenue streams. This would have to look at whether and how the strategic infrastructure money would be hypothecated;
Infrastructure Delivery
- The importance of delivering infrastructure was raised, particularly against tight timescales. Section 75 provided clarity, and effectively meant that the developer would physically put the infrastructure in place themselves, and retain control over the process. PGS might introduce uncertainties into the process by introducing complicated procedures for recycling the revenue. HMT clarified that PGS would create a funding stream, and would not match revenue to individual developments. Another speaker pointed out that the Scottish Executive would have a key role in Scotland, as Treasury did not have fiscal relations with Scottish local authorities. The Executive would need to devise a process that was fit for purpose;
- Another issue was about who would organise procurement: local authorities were not - it was claimed - well placed to do this, and there was a risk of inconsistency of approach. There would be a need for funding skills and training. The rules governing Scottish Water meant that additional funding would not be available for infrastructure spending. HMT said that local authorities could continue to "buy" the work needed for infrastructure implementation from developers and recoup their costs from PGS revenue;
Conclusions
The Scottish Executive invited colleagues to:
- submit their consultation responses to the Treasury by Monday 27 February, and copy them to the Scottish Executive Planning Division;
- contact the Executive Planning Division if they wished to discuss further issues raised by PGS;
- note HMRC's offer of work shadowing, as part of understanding the development process.
CONSULTATION ON A PLANNING GAIN SUPPLEMENT: MEETING BETWEEN SCOTTISH EXECUTIVE, HM TREASURY, HM REVENUE AND CUSTOMS, AND THE OFFICE OF THE DEPUTY PRIME MINISTER WITH KEY STAKEHOLDERS IN SCOTLAND - EDINBURGH, 23 FEBRUARY 2006
ANNEX A
Attendance:
John Duff, RICS Scotland
Liisa Muinonen, RICS Scotland
Colin Graham, Miller Developments
Niall Stuart, Federation of Small Businesses
Jackie McCreery, Scottish Rural Property and Business Association
Helen McKenzie, Scottish Rural Property and Business Association
Misia Jack, Scottish Federation of Housing Associations
Allan Lundmark, Homes for Scotland
Ken Ross, Homes for Scotland
Richard Hartland, West Lothian Planning Authority
Allan Mitchell, CBI Scotland
Kathy Cameron, Convention of Scottish Local Authorities
Sean Murphy, Highlands and Islands Enterprise
Keith Wilson, Scottish Enterprise
Graham U'Ren, Royal Town Planning Institute
Mark Fine, HM Treasury
Tom Duggan, HM Treasury
Dave Smith, HM Revenue and Customs
Neil Rider, HM Revenue and Customs
Mark Obani, HM Revenue and Customs
Liz Barnard, Office of the Deputy Prime Minister
Tim Barraclough, Scottish Executive
Michaela Sullivan, Scottish Executive
Joe Griffin, Scottish Executive
David Goldie, Scottish Executive
David Reid, Scottish Executive
Jim McCulloch, Chief Reporter, SEIRU